NAA and NMHC are advocating for solutions to help supply meet demand and reduce the cost of developing apartments.
Unless public and private sector leaders take bold, innovative action today and in the years to come, the affordable housing crisis will become even more severe. In fact, the United States will need 4.6 million new apartments at all price points by 2030 to keep pace with demand. Solutions that help meet the increasing need and reduce the cost of developing apartments are available, but need to be more broadly adopted across the country.
Unfortunately, the current regulatory framework has limited the amount of housing being built and increased the cost of what is produced. States and localities are now struggling to address this serious threat to their economic vitality at a time when they face dwindling resources. Fortunately, much can be done outside their budgets to make it easier for the private sector to build more housing and help reduce the cost of the housing that is produced.
The Vision 2030 report recommends that state and local governments:
1. Adopt local public policies and programs that harness the power of the private sector to make housing affordability more feasible.
The most common barriers to apartment construction are enacted at the local level, which means local governments have a lot of levers they can pull to create healthy housing markets. They also have no-cost resources they can bring to the table to reduce the cost of housing production.
Establish “by-right” housing development.
Most developments go through a discretionary review process such as public hearings or legislative review by the local land use authority or board of zoning appeals. Public review certainly is important, but is often duplicative, arbitrary and inefficient. Reviews also increase the cost of housing by slowing down its production or even preventing it from being built.
“By right” development allows projects, both new construction and rehabs of existing properties, to be approved by local administrators without discretionary reviews if they comply with current zoning rules and community development plans. Municipalities retain control and can deliver the housing the community has already decided it wants, while loosening restrictions that keep new apartments from being built.
Additionally, municipalities can relax restrictions related to density, building height, unit size and parking minimums. They require developers to seek waivers, variances or rezoning, which trigger the review process.
Expedite approval for affordably priced apartments.
Lengthy permitting processes add cost, time and uncertainty to housing construction. Fast-tracking review and permitting of housing that includes affordable units is a no-cost way for local jurisdictions to expand their supply.
Reduce parking requirements.
Parking requirements are one of the biggest costs for a development, particularly in urban environments, ranging from $5,000 per spot for surface parking to $60,000 for underground parking. The Urban Land Institute found that parking minimums were the biggest barrier to building affordable rentals.
Many cities can significantly reduce or even eliminate parking requirements, particularly in transit-oriented or urban infill development. This approach will become increasingly valuable as ride-sharing increases and automated vehicles become adopted, dramatically reducing parking demand.
Establish density bonuses to encourage development of affordable housing.
Density bonuses make building affordable housing more cost-effective for developers. In return for including a certain number of affordable units in a building, the developer can build more market-rate apartments than are normally allowed.
Adopt separate rehabilitation building codes.
Maintaining the stock of older apartments — which tend to have lower rents — and improving them so they remain habitable is essential to ensuring affordability across the income spectrum. But because many jurisdictions require developers to bring a building up to the current building code when they want to substantially rehab it, upgrading properties often is prohibitively expensive.
Localities can overcome this by adopting separate building codes for rehabilitation projects that balance the need to ensure safety and structural integrity, but don’t sacrifice affordability. They can also offer tax abatement, for properties that include affordable housing, when property taxes rise because of improvements.
Create an efficient public engagement process.
New developments benefit from community input. But the public engagement process can also result in NIMBY (Not In My Backyard) opposition that creates long delays, and even lawsuits, that increase construction costs. There is no single model that works to strike a balance, but localities should examine their process to ensure it’s not one-sided and doesn’t create uncertainty.
2. Increase public-private partnerships.
Policymakers at all government levels can provide incentives and share risk with the private sector to produce the necessary units at price points households can afford.
Leverage underutilized land.
Federal, state and local governments should prioritize affordable housing when disposing of public land. Land accounts for approximately 10 percent to 25 percent of an apartment project’s cost, and even more in high-cost areas. Many localities own underused or abandoned land that could be used for affordable housing. Under-utilized buildings, which can be renovated, are another resource.
Making good use of these lands and buildings requires strong public-private partnerships. The private sector contributes the investment dollars and expertise, and the locality provides the land and helps facilitate a streamlined approval process. In the end, such partnerships produce affordable apartments while also boosting economic development.
Use property tax abatements.
Tax incentives and abatements are another way to spur development. While they reduce public revenues, they are often more politically palatable than direct subsidies.
Waive fees for properties that include affordable units.
Housing developers often pay significant fees to expand public infrastructure or to support the creation of city amenities such as schools and parks. Because fees add to the cost of housing, many jurisdictions waive impact fees for properties that include affordable units.
3. Leverage state-level authority to overcome obstacles to apartment construction.
Forward-thinking states recognize that their economies suffer from a lack of housing supply. They are enacting laws that override local zoning restrictions that inhibit apartment construction. States can also make some state financing contingent on a locality meeting a minimum affordable housing threshold or adopting policies that support housing production.
4. Collaborate with business and community leaders to champion apartments.
Local communities are stronger and more vibrant when there is a mix of rental and owned housing. Without a diversity of housing options to meet a variety of lifestyle needs and price points, local economies are held back. The apartment housing industry needs local leaders in government and business to work together to bring a range of housing types to their communities by crafting creative solutions to ease existing hurdles.
One of the best ways to accomplish this is to make the connection between a sufficient supply of housing and a community’s economic health and economic development. Insufficient housing causes workers to leave an area or lose productivity because of long commutes. Companies relocate or stagnate when they cannot hire the workers they need because their employees can’t find housing.
In other words, ensuring a community has enough housing isn’t just the concern of those who struggle to find housing. It’s an important issue for everyone in the community whose employer might move to another market where housing is more readily available. Several areas have successfully made that connection and have generated political support for regulatory changes or even vocal support for specific projects.
Federal Solutions
It’s not up to states and localities alone to ensure that people have access to housing that fits their needs. The U.S. Congress can take the following steps:
• Enact a pro-development tax policy that incentivizes investment in rental housing.
• Support housing finance reform that preserves the multifamily mortgage liquidity provided by the Government Sponsored Enterprises.
• Support funding for the FHA Multifamily Programs, which are an important source of capital supporting apartment construction and redevelopment.
• Expand the Low-Income Housing Tax Credit.
• Create a Middle-Income Housing Tax Credit.
• Increase funding for subsidy programs that address housing affordability such as the Section 8 Housing Choice Voucher Programs, Project-Based Rental Assistance, Rental Assistance Demonstration, HOME and Community Development Block Grants.
• Reform overly burdensome regulations that contribute to making housing less economically feasible to develop and operate.